Can Nz Get Student Loan In Australia – Yesterday I mentioned that there was a major change in US student loan policy last week, namely income-based repayment. I understand that the new rules make paying off student loans one of the hardest places in the world by some measures. But before I back that claim up, I need to discuss how student loan repayment works around the world.
Trying to compare loan burdens cross-border can be tricky because the underlying logic behind loan repayment rules varies greatly. For example, in Australia, the UK and New Zealand, loan repayments act as taxes, as loan repayments are algorithmically linked to income, while in Canada and the US, the principal amount of the loan also plays a role.
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Let’s start the comparison with the countries with the easiest chart. UK borrowers have to start repaying their loans when their income reaches £25,000, with a 9% surcharge applied for every pound over this limit. In New Zealand, the comparable figures are NZ$21, NZ$268 and 12% respectively. The situation in Australia is slightly more complicated, as income below this threshold is non-refundable (A$48,361) and premiums will be higher.
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Figure 1 shows a comparison of the three countries’ monthly commitments at different income levels (all data expressed in 2021 purchasing power parity dollars). New Zealand has the highest repayment requirements for borrowers and the UK has the lowest repayment and repayment rates. Australia is somewhere in between, looking like the UK for low-income graduates and New Zealand for higher-income graduates.
Figure 1 Monthly student loan repayments based on annual PPP income in USD in New Zealand, Australia and the UK
Take Canada, for example, which is currently transitioning to three different education systems. Our loans are governed by the Repayment Assistance Program. Currently, RAP limits refunds to 20% of income above the $25,000 threshold. Starting in November, the program will change, raising the repayment limit to $40,000 and lowering the repayment rate to 10 percent. In addition, the latest manifesto of the Liberal Party proposes to raise the threshold again to 50,000. So there are a total of 3 different curves. However, there is another aspect of repayment that determines the amount of debt at the beginning of the repayment period and the amortization period. Although we have these income-based systems, which sound like income-based systems in New Zealand or the UK, we have additional payments based on a depreciation system. For comparison, in Figure 2 I assume a debt of US$25,000 (about CAD 31,300) and use a 15-year repayment period under the RAP.
The results are interesting. Payment is based on three payment methods and is approximately $285 per seat per month. But under the current system, borrowers are capped at $37,000 ($46,361 CAD) to repay — under the new system, earning students will pay just $0. Under the system proposed in the Liberal manifesto, students would continue to default on their loans until they reach $74,000 (C$92,722).
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Figure 2 Required Monthly Student Loan Payments Based on Annual Income, Canada, Various Repayment Plans, USD (PPP)
OK, back to the US system. Its initial repayment limit is very low ($20,250), but relatively low, and recent loans have a minimum repayment limit of 10%. The biggest difference from Canada is that these loans require moving to a 25-year amortization period, with a significantly lower down payment and long-term growth. Regardless, this means that an American with a $25,000 loan, like our Canadian example, would have to pay up to $160 a month (plus they could switch the IBR loan to another conventional amortizing loan). ). According to a new announcement last week, they can only pay off the loan once they earn $59,000, as the repayment rate drops to the 5% threshold, the lowest repayment rate in the world.
Figure 3 shows how the five countries where the majority of borrowers have relatively low incomes compare in the first two years after graduation. We also find New Zealand to be the most demanding of borrowers and the UK to be the least demanding. Canada (at least the Canadian version of the system will be implemented this fall) looks like Australia. The US requires lower income taxes, but has a lower refund limit of 5%, which is not much different than the caps imposed by Canada or Australia in this range.
Figure 3 Monthly Student Loan Payments for Low-Income Graduates by Annual Income, Selected Countries, PPP Dollars
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Figure 4 compares the five countries where most students earn between $40,000 and $60,000 a year after graduation. Likewise, New Zealand and the UK form the upper and lower bounds, with Canada and Australia often lagging behind. However, looking at the US, the repayment curve is relatively flat, and the monthly repayment of $160 means that once you reach $60,000 there will be very little repayment pressure (although it is a bit expensive). interest payments over a long period).
Figure 4 Monthly student loan repayments for middle-income graduates, annual income, selected countries, USD PPP
Now let’s look at the higher end of the income spectrum. Currently, the three countries with fully accessible income systems appear to be the most accessible, with Canada and the US beginning to look very accessible due to their maximum payment rules. Of course, since these are interest-bearing loans (at least Canada is considering changing that), there is an incentive to pay more than the minimum to avoid accruing interest. Therefore, the US and Canada lines in Figure 5 are somewhat fictitious and reflect minimum rates of return rather than actual rates of return.
Figure 5 Required Monthly Student Loan Payments for High Income Graduates, Annual Income, Selected Countries, USD PPP
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As you can see from the above, the country with the “best” refund system depends in part on your income level. But before jumping to conclusions, I’d like to add three more details to this comparison: repayment terms, interest rates, and amortization rules.
The first is how long the repayment period is and whether the debt can be forgiven if it is not repaid. Canada looks great by this measure because it has debt relief so quickly in Australia and New Zealand, the debt lasts until death (although given the speed of New Zealand’s economic recovery, few people are likely to be in debt for that long). The second is interest rates. Here, New Zealand is the most generous of the five countries (0 interest for borrowers living in New Zealand and 2.8% for borrowers living overseas), while Canada is the least generous.
Finally, there’s the problem of negative amortization—what happens to the loan’s interest and principal if it’s not enough to cover the interest on the student loan. Disallowing negative amortization means that the government will cover the interest costs so that student loan balances never grow after graduation. This is allowed in Australia, as well as the UK, but ultimately the government wants to achieve this through amnesty clauses. In Canada, the government tolerates and writes off any negative depreciation, whereas in New Zealand this does not happen due to the zero interest rate factor (the government still pays, which is a different mechanism). As Biden announced last week, the U.S. is moving toward a Canadian system that would increase spending in the short term, but not in the long term (since the government would still have to release accumulated negative amortization after at least 25 years) for certain loan programs. ). Regardless of the changes in government spending, this will certainly change the perception of student debt in recent years, not directly from the loans accumulated during graduation.
Of course, every system has some accumulated debt, but that’s another story.